Aug. 4 (Bloomberg) -- New York moved closer to a temporary
state ban on drilling for natural gas from shale that would
delay plans of Chesapeake Energy Corp. and other companies.

The state Senate approved a measure late yesterday that
would prohibit new drilling permits until May 15 in the New York
portion of the Marcellus Shale formation pending further
environmental studies. The moratorium passed 49-9. The Assembly
has yet to take up the measure.

To extract gas from shale, companies use hydraulic
fracturing, or fracking, in which water, sand and chemicals are
injected deep underground to break up rock and allow gas to
flow. The New York-based Natural Resources Defense Council says
greater safeguards are needed to ensure that fracking chemicals
don’t contaminate drinking water.

“Not only did they pass it but it passed overwhelmingly,”
Assemblyman Robert Sweeney, a Democrat from Suffolk County who
sponsored his chamber’s version of the bill, said in an
interview. “That opens the way for us to do to the bill in the
Assembly where I would expect it to pass with similar
overwhelming numbers.”

Drilling for gas using fracking has proven to be
environmentally safe, said Brad Gill, executive director of the
Hamburg, New York-based Independent Oil and Gas Association,
which includes Chesapeake Energy and Talisman Energy Inc. New
York will miss out on jobs, tax revenue and drilling fees if the
suspension is approved, Gill said.

“It would be irresponsible to see lawmakers cave to scare
tactics of radical opponents,” Gill said in a statement. “It
would be a slap in the face to landowners, New York taxpayers,
all the people of the Southern Tier.”

Drilling Revenue

The suspension will give New York time to learn lessons
about fracking from neighboring Pennsylvania, where more than
1,000 wells have been drilled in the Marcellus Shale since 2005,
according to Senator Antoine Thompson, a Democrat who sponsored
the bill. Drillers in Pennsylvania have been cited for 1,435
violations since 2008, 952 of which may affect the environment,
according to a report this week from the Harrisburg-based
Pennsylvania Land Trust Association.

Issues listed in the report include improper construction
of waste-water compounds used to store fracking fluids and
violations of the state’s clean stream law. In addition, the
state issued 669 traffic citations and 818 written warnings to
trucks hauling drilling wastewater during three days of
intensive enforcement in June, according to the report.

‘Setting an Example’

“New York can be the first state to protect residents’
health and the environment before drills break ground, setting
an example for the rest of the nation,” Kate Sinding, senior
attorney with the Natural Resources Defense Council, said in a
statement.

The measure would postpone a potential revenue source for
the state. Drilling revenue in New York could reach $1.9 billion
in 2015, according to a study from Laramie, Wyoming-based
Natural Resource Economics Inc.

“Chesapeake is drilling safely and effectively across the
border in Pennsylvania, generating significant economic benefits
to dozens of communities across that state,” Paul Hartman,
Chesapeake’s director of state government relations for New
York, said in an e-mail. “It is disappointing the Senate passed
a bill based on misinformation and inaccuracies.”

Chesapeake, Calgary-based Talisman and closely held
Vertical Resources Inc., based in Sugar Grove, Pennsylvania,
have filed a combined 58 applications for drilling permits in
New York. The proposals are on hold while the state Department
of Environmental Conservation reviews guidelines for gas
drillers.

New York City

In April, the state agency said it would offer guidelines
for drilling in the watersheds for New York City and Syracuse
that are tougher than planned for the rest of the state. Water
feeding both cities is so clear it is exempt from federal
filtering requirements.

“There’s no such thing as 100 percent safe in anything,
but you can do an extreme amount of due diligence to take as
many safety precautions as possible,” Thompson said today in an
interview. “We cannot leave that responsibility solely with the
DEC.”

Since 2007, discoveries of unconventional gas including
shale gas have more than doubled the estimate of North American
reserves to 3,000 trillion cubic feet, enough to meet 100 years
of demand, according to energy consultant IHS Cambridge Energy
Research Associates in Cambridge, Massachusetts. The Marcellus
Shale formation, which extends from West Virginia through
Pennsylvania and into New York, may contain 50 trillion cubic
feet of gas.

Pennsylvania, West Virginia

Revenue from Marcellus Shale lease payments, royalties,
taxes and pipeline and plant construction in Pennsylvania and
West Virginia totaled $5.8 billion in 2009, according to the
July 14 study prepared for the American Petroleum Institute, a
Washington-based group that represents oil companies.

New York City Mayor Michael Bloomberg has said drilling in
the portions of the Marcellus Shale beneath the city’s watershed
“must be treated differently.”

The most-populous U.S. city receives 1.3 billion gallons
(4.9 billion liters) a day of water through a network of
gravity-fed aqueducts from 19 reservoirs as far away as 125
miles (200 kilometers). It’s the largest unfiltered water-delivery system in the U.S.

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